eBay and Skype – Where now For Telcos?

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Content Copyright © 2005 Bloor. All Rights Reserved.

It has been a very busy few weeks in the IP telephony market. Two weeks ago Microsoft dived in and bought Teleo. Last week the best known VoIP (Voice over IP) supplier, Skype, announced that it had reached an agreement to be acquired by eBay. These moves do more than simply confirm the growing use of VoIP as an acceptable form of communications. They indicate that the worst fears of the large Telcos may be about to come true – and start hurting their long cherished, and highly profitable, telephone call revenues.

eBay Inc., the most prominent on-line auction house, has agreed to pay cash and stock totalling approximately .6 billion to acquire Skype Technologies SA. In fact if various performance based factors are triggered, the price paid could rise further. This makes Skype, a company only 3 years old, a reasonably expensive purchase.

The deal should certainly be good for Skype and its current 54 million registered users around the world. Currently these users make around 150,000 calls a day, although the number is rising. Indeed, such is the success of the company’s solution that in some circles (including the IT Industry analyst community) the verb to Skype is often brought into everyday conversation.

Whilst Skype is relatively well known to those who spend a fair amount of time online there is no doubt at all that when eBay concludes the acquisition it will become known to a much wider community. The potential expansion in Skype usage should accelerate further following the closure of the deal. Ignoring the cash benefits to Skype, in particular to co-founders Janus Friis and Niklas Zennström, the potential to rapidly grow its member numbers and usage almost justifies the sale. The ability to utilise PayPal, also owned by eBay, to take call payments for its fee based services – for example to call a ‘standard’ landline number – is a collateral benefit.

For its part, eBay believes that the ability to allow potential buyers to speak easily and without cost to sellers will improve the speed and volume of transactions completed, particularly those of a more complex or high-value nature, but paying over billion for such facilities may prove to be a little expensive. However, eBay has not grown to be as successful as it undoubtedly is, without reason.

All things considered, the acquisition of Skype by eBay should benefit the users of the services of both organisations. The only parties that are likely to be concerned over the long term will be existing providers of telecommunications services. This acquisition is yet another validation of the growing importance of VoIP as a communications medium. VoIP is already taking traffic away from the Telcos, especially in their relatively lucrative international call markets. It will be interesting to see how the Telcos respond to the VoIP threat as broadband connectivity becomes more the ‘norm’.

A quick look at the German broadband market illustrates the point neatly. Today, nearly all broadband service providers now offer to supply routers, at little or no cost, that give the user the option of connecting their existing telephone handsets simultaneously to the broadband line and to the existing telephone line. In this model it is easy for calls to be made and received using either traditional telephone lines and numbers, or VoIP.

The Telcos know that VoIP is now viable and will soon become routine. Their challenge is to find new, sustainable business models and to establish them quickly.